Intention to Create Legal Relations

1
Intention to Create Legal Relations

• Contracts

2
Introduction

• So far, we have more or less assumed that the
  parties intended to create a legally-enforceable
  relationship.
• We have been looking for offer, acceptance,
  certainty of terms, and resolution of contingency
  issues, basically to get to a point of saying
  that what at least one of the parties say they
  want a contract.
• But this is not always the case.

3
Introduction

• An example
• Person A goes to Person B and says the following
  If you will let me borrow 20, I will pay you
  21 back tomorrow. Person B agrees. The next
  day, Person A pays back the 20, but no more.
• Should Person A be required to pay the extra
  dollar?
• Would your answer be different if Person A were
  related to Person B? If so, why is this? If
  not, why not?
• Would your answer be different if the amount
  borrowed were 20,000, as opposed to 20? If so,
  why is this? If not, why not?

4
Family/Social Relationships

• Balfour v. Balfour
• 1919 English Court of Appeal
• Facts
• The parties were married in 1900. Guy works in
  Sri Lanka. They lived there for 15 years. While
  he was on leave they returned to England when he
  had to head back to Sri Lanka, his wife was ill,
  and remained in England
• Guy promises to pay his wife 30 per month until
  she returned to Ceylon (made August 8, 1916)

5
Family/Social Relationships (contd)

• Balfour v. Balfour (contd)
• Facts (contd)
• They had not agreed to live apart until after the
  agreement was made.
• After a few months, the husband wrote saying that
  he thought that they should remain apart. They
  were divorced, and she got an alimony order.

6
Family/Social Relationships (contd)

• Balfour v. Balfour (contd)
• Holdings
• Paragraph 3
• there are agreements between parties which do not
  result in contracts within the meaning of that
  term in our law. The ordinary example is where
  two parties agree to take a walk together, or
  where there is an offer and an acceptance of
  hospitality. Nobody would suggest in ordinary
  circumstances that those agreements result in
  what we know as a contract, and one of the most
  usual forms of agreement which does not
  constitute a contract appears to me to be the
  arrangements which are made between husband and
  wife.

7
Family/Social Relationships (contd)

• Balfour v. Balfour (contd)
• Holdings (contd)
• Paragraph 3 (contd)
• All I can say is that the small Courts of this
  country would have to be multiplied one
  hundredfold if these arrangements were held to
  result in legal obligations. They are not sued
  upon, not because the parties are reluctant to
  enforce their legal rights when the agreement is
  broken, but because the parties, in the inception
  of the arrangement, never intended that they
  should be sued upon.

8
Family/Social Relationships (contd)

• Merritt v. Merritt
• 1970 English Court of Appeal
• Facts
• The parties were married in 1941. They bought a
  house and put it in the name of the husband. The
  wife worked outside the home. There was a
  mortgage. In 1966, it was put in the name of
  both of them. Then the husband fell for the
  other woman. The husband split to be with her.
  After this, the parties made an arrangement that
  the husband would pay 40 per month in
  maintenance, but that she would be responsible
  for the mortgage. The parties agreed to the
  following

9
Family/Social Relationships (contd)

• Merritt v. Merritt (contd)
• Facts (contd)
• In consideration of the fact that you will pay
  all charges in connection with the house at 133,
  Clayton Road, Chessington, Surrey, until such
  time as the mortgage repayment has been
  completed, when the mortgage has been completed I
  will agree to transfer the property into your
  sole ownership.
• Signed. John B. Merritt 25.5.66.

10
Family/Social Relationships (contd)

• Merritt v. Merritt (contd)
• Arguments of the husband
• Intention to Create Legal Relations
• Parties about to separate (para. 5)
• Objective intention (para. 7)
• Uncertainty 40 per month is not uncertain
  (para. 8)
• Consideration Promise to pay the mortgage, even
  if it comes out the 40 per month
• Promise to pay is good enough

11
Family/Social Relationships (contd)

• Fobasco Ltd. v. Cogan
• 1990 Ontario High Court of Justice
• Facts
• Guy buys eight season tickets to Blue Jays games.
  The plaintiff claims that six of the tickets
  belong to him and his company. The defendant
  claims that the use of the tickets was based on
  his desire to be good to business associates, not
  to enter into a contract (paras. 1-3).

12
Family/Social Relationships (contd)

• Fobasco Ltd. v. Cogan (contd)
• Facts (contd)
• Cogan purchased the tickets his secretary would
  distribute them, and the Shermans received two
  and the Fingolds four of these (para. 4).
• After ten years, Cogan was not doing much
  business with the Fingolds, and his kids wanted
  more tickets.
• A lawsuit was started, then settled. The trial
  judge accepted that Cogan agreed to continue the
  current arrangement until the SkyDome opened
  (para. 8).

13
Family/Social Relationships (contd)

• Fobasco Ltd. v. Cogan (contd)
• Facts (contd)
• There was a quid pro quo of two club seats in
  return for the four being taken back by Cogan.
  The Fingolds thought that these were in addition
  to rather than in substitution for the tickets
  claimed by them (para. 10).
• Sherman gave up two of his tickets to replace
  some of what the Fingolds claim they lost.
• Then both the Fingolds and Sherman sued Cogan

14
Family/Social Relationships (contd)

• Fobasco Ltd. v. Cogan (contd)
• Holdings
• Offer and Acceptance Clear here (para. 16)
• Consideration Ongoing business relationship
  (plaintiff) (para. 19)
• A reasonable person would not think that the
  arrangement was intended to transfer ownership of
  the tickets from Cogan to the Fingolds and
  Sherman (paragraph 17)

15
Family/Social Relationships (contd)

• Fobasco Ltd. v. Cogan (contd)
• Holdings (contd)
• Consideration None, because it is distinct from
  motive. Cogan received no benefit (paragraph
  19).
• This was a social relationship not intended to be
  enforceable in a court of law (paragraph 20)

16
Commercial Relationships

• Edwards v. Skyways Ltd.
• 1964 English Court of Appeal
• Facts
• The plaintiff worked for the defendant. He was
  declared to be redundant, that is, he was
  downsized. He could either move or take a pay
  cut. The union of which he is a member goes to
  the company to discuss the allegation that
  certain formalities were not followed (on
  February 8).

17
Commercial Relationships (contd)

• Edwards v. Skyways Ltd. (contd)
• Facts (contd)
• On February 6, the board empowered the secretary
  to give ex gratia payments to cover the
  redundancies (para. 2)
• Paid up pension that was not to be paid until
  normal retirement age (para. 5).
• Instead, the company agreed to make an immediate
  payment of the companys contributions (the
  employees automatically had the right to withdraw
  the employees own contributions) (para. 5)

18
Commercial Relationships (contd)

• Edwards v. Skyways Ltd. (contd)
• Facts (contd)
• The plaintiff did not wish to accept alternative
  employment with the company. He had found other
  employment and was ready to leave before the
  notice period was even up. The plaintiff wants
  his money, and demands it from the company (para.
  10).
• On May 1, they sent him a cheque for his
  contributions, without an issue, but then passed
  a resolution indicating that the decision to make
  the ex gratia payments was reversed because
  creditors to whom the company clearly owed
  money were demanding payment on their accounts
  (para. 12).

19
Commercial Relationships (contd)

• Edwards v. Skyways Ltd. (contd)
• Arguments
• No consideration Of course there was, because
  the redundant pilot was foregoing the right to
  receive a pension later (para. 13)
• Commercial relationship Presumption in favour
  of the enforceability
• Rebuttable
• Probably has to be expressly negatived (para. 15)

20
Commercial Relationships (contd)

• Edwards v. Skyways Ltd. (contd)
• Arguments (contd)
• Onus on the person alleging no contract (para.
  15)
• Ex gratia Defendant says that this is
  sufficient to rebut
• The Court Ex gratia means no admission of
  liability, but that does not mean that the
  arrangement is unenforceable (paragraph 16)
• Ex Gratia Tax consequences
• May be relevant but not proven sufficient
• Approximating to Cannot bind (paragraph 18)
• Rounding only

21
Commercial Relationships (contd)

• British Steel Corp. v. Cleveland Bridge and
  Engineering Co. Ltd.
• 1984 English Court of Queens Bench
• Facts
• BSC delivered materials to CBE. Despite this
  there was never any formal contract
• CBE contended that there was a contract, based on
  written documentation. BSC claims that they are
  entitled to be paid on an unjust enrichment basis
  for the materials delivered to CBE.

22
Commercial Relationships (contd)

• British Steel Corp. v. Cleveland Bridge and
  Engineering Co. Ltd. (contd)
• Facts (contd)
• The facts necessary prove this claim are
  essentially admitted by CBE. But CBE also claims
  that errors in delivery time and sequence that
  more than wipes out BSCs entitlement to get
  paid.
• CBE was a subcontractor on a job that required
  specialized steel work. They contacted BSC. The
  parties entered into negotiations. On 9
  February, a letter was sent setting out what BSC
  was offering. To this CBE replied as follows

23
Commercial Relationships (contd)

• British Steel Corp. v. Cleveland Bridge and
  Engineering Co. Ltd. (contd)
• Facts (contd)
• We are pleased to advise you that it is the
  intention of Cleveland Bridge Engineering Co.
  Ltd. to enter into a Sub-Contract with your
  company The form of Sub-Contract to be entered
  into will be a copy of which is enclosed for
  your consideration. We also enclose a copy of the
  Specification which is to be complied with
  where applicable. However, the specification for
  the castings will generally be in accordance with
  the discussions held at the Consultant Engineer's
  offices (paragraph 11)

24
Commercial Relationships (contd)

• British Steel Corp. v. Cleveland Bridge and
  Engineering Co. Ltd. (contd)
• Facts (contd)
• This is quite clear that the contract has not
  been entered into. The plaintiff needed better
  drawings (paragraph 12).
• The form of agreement was to be CBEs standard
  form which made BSC liable for late delivery with
  no limit on consequential damages. This is a
  subject to contract clause.

25
Commercial Relationships (contd)

• British Steel Corp. v. Cleveland Bridge and
  Engineering Co. Ltd. (contd)
• Facts (contd)
• The letter of intent contained no reference to an
  order of delivery, which is one of the things for
  which the defendant was now suing the plaintiff
  (paragraph 12).
• Despite ongoing disagreements, the parties agreed
  that BSC should continue manufacture. BSC was
  working really hard to get this done to CBEs
  standards.

26
Commercial Relationships (contd)

• British Steel Corp. v. Cleveland Bridge and
  Engineering Co. Ltd. (contd)
• Facts (contd)
• There were ongoing problems over price and
  specifications.
• Another offer on a standard form by CBE
• Price was later agreed, but other issues remained
  outstanding (paragraph 13)

27
Commercial Relationships (contd)

• British Steel Corp. v. Cleveland Bridge and
  Engineering Co. Ltd. (contd)
• Arguments
• The offer was in the letter of intent and the
  letter of February 27 sent by telex with
  specification, and the acceptance was by the
  conduct of manufacturing the nodes.
• All other arguments that had been made in the
  pleading beyond the quantum meruit claim
  mentioned earlier seem to have been abandoned.

28
Commercial Relationships (contd)

• British Steel Corp. v. Cleveland Bridge and
  Engineering Co. Ltd. (contd)
• You need not worry about the distinction between
  quantum meruit claims, on the one hand, and
  contractual claims, on the other, for the
  purposes of the examination.
• The real difference is that CBE needs there be a
  contract in order to win its case, whereas given
  that BSC has given something of value to CBE
  and CBE is unwilling to give it back whether
  there is a contract or not, CBE cannot keep what
  was given without paying for the value of it
  (paragraph 18).

29
Commercial Relationships (contd)

• British Steel Corp. v. Cleveland Bridge and
  Engineering Co. Ltd. (contd)
• Arguments (contd)
• Bilateral Contract By starting work,
  understanding that BSC would be paid, and
  therefore, BSC breached (paragraph 20)
• Unilateral contract If you build the nodes, we
  agree as follows
• The real problem with this is that even it is
  clear that there will be standard terms, it is
  unclear which terms will apply battle of the
  forms (paragraph 20)

30
Commercial Relationships (contd)

• British Steel Corp. v. Cleveland Bridge and
  Engineering Co. Ltd. (contd)
• Arguments (contd)
• The plaintiff alleges that even if the court were
  inclined to find a contract, price was not yet
  fully agreed. Since in Courtney v. Tolani, Lord
  Denning, M.R., said that price was essential.
  Therefore, according to the plaintiff, there
  vagueness in the form of incompleteness. The
  trial judge says that even though this is Lord
  Denning, M.R., said, it is not a universal rule.
  In other words, if the judge were otherwise
  inclined to find a contract, it was not
  incomplete (paragraph 22).
• No contract